Why have skill shortages continue to persist despite increases in training and the skill levels of the workforce? We argue that technical progress has raised the demand for skilled labour to mach the observed increase in supply. We provide econometric evidence in support of this hypothesis, showing that skill shortages are higher for establishments that use advanced technology in the production process. We also provide econometric evidence that hiring difficulties are inversely related to the

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... lative wage, as theory would suggest. Our results have clear implications for policy. If technological progress continues to be skill biased, policies that address skills deficiencies will only be successful if they produce a continual, rather than a temporary, increase in levels of skills among the workforce. , chart 3.13. CBI Industrial Trends Survey data show a fall from 43% to 25% when comparing the peaks of 1988 and 1997. However, the CBI data is derived from a survey asking whether shortages of labour will limit output, whereas the BCC survey asks if employers are having difficulty in finding skilled labour. The BCC question seems a more direct measure of shortages. 2 But see Green et al (1995) who dispute that effective training has risen significantly. 3 1990/1 were recession years where real GDP fell. Skill shortages therefore fell, but since output fell in all sectors this should not unduly Skill shortages, hard-to-fill vacancies and recruitment difficulty by broad occupational group manufacturing services All Energy/water metals, minerals chemicals metal goods, engineering, vehicles other manufacturing construction distribution, hotels, catering transport and communication banking and finance public admin, med personal and dom services